Having contributed little to world growth for more than 10 years as it suffered a “lost decade” of stagnation and deflation, Japan, the world’s second-largest economy, has quietly plugged itself into Asia’s expansion and is hopeful it has “decoupled” from the US. And for a country that is totally dependent on imported oil, there is also remarkably little panic about the recent highs in world oil prices.
For one thing, Japan has seen a big increase in demand for things such as luxury cars and capital goods from oil-producing countries, thus cushioning it, to some extent at least, from the effects of dearer energy.
Also important is that Japan has very little exposure to the sub- prime mortgage crisis. Japan can be thankful that its own property crash in the early 1990s means it has not seen a boom in house prices in recent years. This is because its banks remained cautious about over-lending on property while consumers, scarred by those house price falls of 80 percent or 90 percent, have no appetite for property speculation.
In fact the total losses of the Japanese banking system to subprime mortgages look to have been less than US$10 billion, a fraction of the sorts of losses being run up in Britain and the US.
“There is a 50-50 chance of a mild recession this year but we think it will be mild and short with a recovery occurring later this year,” said Takahide Kiuchi, chief economist at Nomura bank in Tokyo. “There is no serious credit crunch in Japan and in any case Japan is decoupling gradually from the US.”
He points to the fact that Japanese exports to China last year outstripped those to the US for the first time ever.
And recent data showed the Japanese economy grew at an annualized pace of 3.3 percent in the first quarter of this year, stronger than most analysts had expected. Data last week on industrial production and consumer spending, though, were weaker than expected and showed that the strain is beginning to be felt. But Japan has enjoyed respectable growth for the past six years, its longest uninterrupted expansion for a century, thanks in part to the Bank of Japan running interest rates at, or close to, zero. The country’s long-running deflation seems to be finally over, with inflation running at just over 1 percent.
Senior officials say the economy has become much more stable as it has plugged into the booming economies of Asia, exporting everything from consumer goods to machine tools. But not everyone is convinced, with some worried that as Asia slows in response to lower exports to a recession-hit US, Japan’s exports will suffer, as will its consumers, whose spending will be hit by higher fuel prices.
LITTLE GAINED
“Japan might plunge into recession. Exports are already in a downturn and while domestic consumption should help an economy in a downturn, that is very sluggish here in Japan,” said Masayuki Naoshima, of the opposition Democratic Party of Japan, which is increasingly confident that it may finally oust the Liberal Democratic Party (LDP) from power after more than 60 years.
He is hoping the party can capitalize on the growing discontent with the considerable economic problems that lie beneath the outwardly healthy picture. He pointed to growing inequality within a country that used to be famous for the narrow gap between rich and poor.
Japan’s lost decade pushed the country’s wealth down sharply. It has slipped from second place in terms of national income per head to 18th. Wage growth has been almost non-existent for years as manufacturers have shifted jobs to China at an even faster pace than Britain has done. Japan has shed 3 million manufacturing jobs in the past decade, compared with 1 million in the UK.
Bizarre though it may seem, many in Japan envy Britain’s job creation record in the service sector, although not the huge trade deficit that has resulted from the UK’s recent consumer boom.
Unemployment stands at 4 percent — low by global standards but high compared with Japan’s post-war decades of full employment and the highest figure since last September. There has also been a huge change in the labor market in recent years, with Japan’s “jobs-for-life” culture sharply eroded. About a third of all jobs are now temporary or part-time, and the wages are poor.
Naoshima said that about a third of the workforce have annual earnings of ¥Y2 million [US$20,000] or less. A small manufacturing business in Tokyo reports its workers were earning US$3,000 to US$4,000 a month for a 50-hour week.
“The big companies in Japan tell us we have to produce at Chinese prices,” said Yukinori Kida, who runs a small factory producing specialized ceramic screws that he manages to sell all over the world. “Unless you have very original products, you lose out.”
In fact, innovation is the word on everyone’s lips in Tokyo as the Japanese try to figure out how to stay ahead in an ever more competitive global marketplace.
Yutaka Asai, chief technology officer at Oki, thinks Japanese spending on research and development, which is very high by international standards, can keep the country going for another decade.
“But in 20 years’ time, who knows? It will depend on whether we can keep our knowledge advantage,” he said.
NOTHING VENTURED
Japanese policymakers fret that though their big companies such as Toshiba, Sony and so on are constantly evolving new products, Japan does not seem to produce the start-ups that burst out of nowhere and drive immense change, helped by a vibrant venture capital industry hungry for the next big innovation.
“Japan will not change that much if we don’t produce the Googles,” said Takafumi Yamamoto, who runs Tokyo University’s technology-licensing operation, which spins off innovations into the private sector.
Yuji Tokumasu, of the Ministry of Economics, Trade and Industry (METI), agrees: “We have to create the success stories. We need to change because the big companies don’t take risks any more. We need to create a virtuous circle,” he said.
Though many Japanese concerns are mirrored in Britain, the attitude towards immigration is entirely the opposite. The Japanese, facing a shrinking and aging population, are thinking they need more, rather than less, immigration, particularly of nurses and doctors to look after them as they grow old.
The government, too, is wondering how it will have enough working people to support a growing number of pensioners. Though its annual budget deficit is about 4 percent of national income, its total government debt is stuck at about 180 percent of GDP, nearly four times the UK’s and a legacy of the purchases of the banks’ non-performing loans in the lost decade.
A government official said the country would need to run a budget surplus for “many, many years” to shrink that debt. And that means tax rises and spending cuts. No wonder the government is unpopular.
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